A ship, after experiencing water ingress into its cargo hold during a typhoon, sank and subsequently caused a fuel oil leak. In response to the incident, the local XXX Maritime Safety Administration organized pollution cleanup and prevention operations, incurring substantial expenses. This raises several legal questions: How should the law be applied in such a circumstance? Does the local Maritime Safety Administration have the right to recover the costs of cleanup and pollution prevention from the liable parties? Who should be held liable for compensation?

Basic Facts

In the fall of 2014, the ship HAO JUN owned by Company A, was hit by Typhoon Kalmaegi. The storm caused water ingress into the ship's cargo hold, ultimately leading to its capsizing and sinking. The situation escalated when fuel oil from the submerged vessel leaked into the sea, spreading across the surface and contaminating nearby waters to varying degrees.

In response to the oil pollution resulting from the shipwreck, the local XXX Maritime Safety Administration took swift action. It enlisted Company B to immediately undertake pollution prevention and cleanup operations, while assigning Company C to dispatch vessels to the shipwreck site to monitor the oil spill. Company B promptly implemented measures to control the oil pollution, and Company C dispatched vessels to conduct close monitoring at the site to curb further spread of the oil leak. However, a key question emerged: who should bear the financial responsibility for these cleanup and prevention efforts?

Prior to the incident, Company A had secured a coastal ship fuel pollution liability insurance policy with XXX Branch of PICC. Both Company B and Company C confirmed that the local XXX Maritime Safety Administration would pursue cost recovery on their behalf. Consequently, the local XXX Maritime Safety Administration filed a lawsuit with the Guangzhou Maritime Court (GZMC), requesting that Company A and XXX Branch of PICC jointly pay cleanup and pollution prevention costs amounting to RMB 1,950,799.60 plus interest.

Company A maintained that it should not be held liable, arguing that it bore no fault in the incident. It asserted that the XXX Branch of PICC, under the terms of the insurance contract, should be responsible for covering the pollution prevention and cleanup costs. In contrast, the XXX Branch of PICC countered that the local XXX Maritime Safety Administration lacked the legal standing to directly file a claim, insisting that such a claim should instead be pursued by the cleanup companies involved. Additionally, it challenged the reasonableness of the claimed expenses, particularly those associated with the deployment of cleanup vessels.

With all parties locked in dispute, the question remains: who should ultimately bear the liability?

Court Decision

Guangzhou Maritime Court determined that the case constituted a dispute over liability for marine pollution & damage by ship. Under paragraph 1, Article 71 of the Marine Environmental Protection Law of the People's Republic of China, the local maritime safety administration, as the competent maritime administrative authority, is authorized to engage pollution cleanup companies to implement measures aimed at preventing or mitigating pollution and damage when a shipwreck poses a significant risk to the marine environment. In this instance, Companies B and C, which carried out the cleanup operations, were appointed by the local XXX Maritime Safety Administration and agreed to have the Administration pursue compensation on their behalf. Consequently, the local XXX Maritime Safety Administration has the legal standing to seek compensation from the liable parties for the oil pollution. Furthermore, pursuant to Paragraph 1, Article 97 of the Special Maritime Procedure Law of the People's Republic of China, the plaintiff is entitled to directly demand payment of insurance claims from the defendant, XXX Branch of PICC.

The plaintiff claimed that the cleanup vessel HUASHENG YOU 3, deployed for the operations, should command a usage fee of RMB 40,000 per day. However, this rate exceeds typical market standards, considering the vessel's gross tonnage of only 408 and a registered bareboat charter rate of RMB 120,000 for two years. GZMC determined the operational rate at RMB 3 per horsepower per hour and the standby rate at half that amount. Given the vessel's 296 horsepower, it operated for 156 hours and remained on standby for 348 hours. Based on these parameters, the court calculated the usage fee as RMB 293,040. Combined with additional expenses totaling RMB 365,324.50, the overall amount reached RMB 658,364.50. The court ruled that this sum constitutes the liability of Company A, as the shipowner, and shall be covered by XXX Branch of PICC, the insurer for oil pollution liability, within the limits of the insurance policy.

Key Significance

The urgency and severity of consequences of marine oil pollution necessitate the immediate implementation of cleanup measures. When a maritime administrative authority organizes and directs pollution prevention and cleanup entities to mitigate damage during an emergency, it fulfills its duty to safeguard the marine environment. This scenario exemplifies a situation where an administrative body delegates responsibilities to third parties on its behalf. The consent of cleanup companies to allow the relevant maritime administrative authority to pursue claims on their behalf ensures that defendants are not exposed to duplicate claims, thereby affirming the authority's legal standing to assert such claims.

In emergency situations, cleanup companies mobilized by the authority often cannot negotiate fees with shipowners in advance or secure written contracts. In practice, the absence of standardized fee rates for cleanup vessels frequently leads to significant disputes over cost calculations. After a thorough review of industry practices and consultation with experts, GZMC established adjusted rates of RMB 3 per horsepower per hour for operational fees and half that rate for standby periods. These rates were informed by emergency rescue contracts and towing fee benchmarks, forming the basis for the court's judgment. The successful resolution of this case effectively balanced the interests of the maritime administrative authority and the liable parties. It also set a precedent for addressing similar incidents, contributing to the protection of the marine environment in the Guangdong-Hong Kong-Macao Greater Bay Area.